Future of road transport?

Stef ProostKULeuven (B)

Issues in EU white paper for transport (March 2011)

• Key goals by 2050 include:– No more conventionally fuelled cars in cities (and

50% less in 2030)– 40 % use of sustainable low carbon fuels in aviation– 50% shift of medium distance intercity passenger and

freight journeys from road to rail and waterborne transport (30% shift by 2030)

– Triple length of HSR network by 2030– Near zero road casualties (and 50% less by 2020)– Move towards full application of user pays and

polluter pays principles…

Future is

• Electric cars in cities ?• Mostly rail for passengers ?• Mostly rail + waterways for freight ?

Outline

• Diagnosis of problems• What long term trends?• How to assess Climate Change policies? • Survey & Assessment of solutions

– Modal choice– What vehicle technologies make sense?

• Land use issues

Diagnosis of road transport problems

What long term trends?

2050 Share OECD

Road use cars x 2.5 From 50% now to 20% in 2050

Road use trucks x 5 From 50% now to 20% in 2050

air x 5

GHG emissionstransport

x 2 or x 3 From 60% now to 35% in 2050

Outline

• Diagnosis of problems• What long term trends?• How to assess Climate Change

policies? – The Economist’s way– Stock externality and uncertainty– International problem

• Survey & Assessment of solutions

The Economist’s way MINIMIZE TC m_tr TC mtr TotalDamage(m_tr mtr)

m_tr = non transport measure saving 1 ton of CO2mtr = transport measure saving 1 ton of CO2TC= total cost (including resourcess,comfort, time)TD= total da

mage TC m_tr TD m_tr

(1)m_tr m_tr

TC mtr TD mtr (2)

mtr mtrcost efficiency= distribute efforts over non transport and transport so as to equal Marg costshow much to abate: until Marg Cost = Marg Dam

age

Climate = stock problem+uncertain

• Stock: – it is not important to reach a specific target

every year– one can wait, learn and adapt policies

• Uncertain– If Catastrophic: one needs to limit total stock

(expected utility breaks down)– If not catastrophic: Marginal Damage is best

policy guide – acts as maximal cost for a measure

International problem 1• Every country enjoys the benefits of emission

reduction efforts of the others (“common pool” or public good problem)

• International agreements are not enforceable by external party, so they have to be “self- enforcing”: it is in the interest of every country to be member even if the non members can enjoy the same benefits

• Theoretical result: for constant MB,linear MC and N identical countries, the number of signatories of an Int Climate Agreement is 3 whatever N>3…

10 MB

MB

3MB

MAC

abatement

$/ton

1 3 10

nash

Int agreement

Total abatement effortNash: 1x10 = 10Int Agreem 3x3 + 7= 16Full cooperation (FB)= 10x10=100

International problem 2

• International energy markets: reducing CO2 emissions unilaterally means decreasing total energy demand for fossil fuels

• This will lower prices on world markets of oil, gas and coal and increase consumption by non signatories

• “Leakage”

Transport and Climate policy in EU

• Dominant policy issue: climate change• 3 major mistakes in policy making:

– Transport has to do its fair share (not efficient as MCmtr>MCm_tr)

– EU reduces to 20%, the others will do it too and anyway it does not harm us or it costs us nothing…(naïve)

– Important to achieve the -30, -50 and -80% targets - no better to count on Marg Damage, as reaching the target can be very costly

Outline• Diagnosis of problems• What long term trends?• How to assess Climate Change policies?

– The Economist’s way– Stock externality and uncertainty– International problem

• Survey & Assessment of solutions– Modal choice policies– Vehicle technology policies– Land use policies

Modal shift policies in urban areas (more bus,rail,more bike, walk..)

• Differences between Europe and US:– share of car trips in Amsterdam is 30%, in Houston it is 95%– In US, most transit systems do not pass Cost Benefit test

• In Europe– Heavily subsidized (second best policy- in Leuven there is 15%

cost coverage of operation costs – free bus use by students makes that Leuven became bus city rather than biking city)

– Bias in favour of light rail (usually much more expensive than bus)

– But bus can only be as efficient as light rail if it gets reserved bus lane, but this is inefficient use of capacity, better is to make car use more expensive via road pricing

– Road pricing will allow to increase speed, to lower cost of public transport (saving driver costs, bus rather than light rail) and to increase fares for public transport

Modal shift policies in non-urban areas (more rail,waterways..)

• Differences between Europe and US:– High Speed rail for passengers in EU, no

HSR in US– More rail freight in US than in Europe

• In Europe– 30 TEN-T priority projects (600 billion €),

including Brenner tunnel, Bridge to Sicily, many HSR projects etc.

– We assessed most of these projects

Model 1 :Continent wide Regional GE model (Bröcker)

• « New Economic Geography » Model:– EU divided into 260 regions that all produce a separate variant –

trade (freight) = consumption of variants by different regions– Freight investment: lower trade costs and therefore new

consumption opportunities and welfare gain • Only 10 of the 22 projects studied pass the CBA

efficiency test • 9 out of the 22 projects have less than 10% of their

benefits outside their own country – So « Transeuropean » character of these projects is very low

• The selected projects do not systematically favour the poorer member countries

Model 2: High Speed Rail and air competition model (Adler)

• EU divided in 71 zones• Players:

– 1 EU rail operator (best case to avoid double marginalization)

– 3 hub and spoke airlines– 2 low cost airlines

• Business and leisure travellers• 6 Compete in prices and frequencies• Compare equilibria with/without extra HSR lines

and with low/high accession charge for use of infra by train operator

High-Speed Rail Network (68 arcs)

Assessing the TEN-T priority projects

• Using 4 different models (New Economic Geography model, network model air-rail, freight corridor model, MOLINO II)

• Difficult to find a reasonable Cost Benefit Analysis in Fr or ENG (4? out of 22)

• Half of the projects have no net economic return• The proportion of « transit » in many priority

projects is small• The priority projects do not systematically benefit

the poorer regions• Transport pricing matters (rail, road, ..)

Outline• Diagnosis of problems• What long term trends?• How to assess Climate Change policies?

– Survey & Assessment of solutions– Modal choice policies– Vehicle technology policies (cars)

• Conventional pollutants (ozone, PM10, …)• Fuel efficiency of vehicles• New vehicle technologies and new fuels

– Land use policies

Vehicle technology policies 1 (cars)

• Has been very successful for reduction of conventional pollution (NOx, VOC, PM10, ..) using catalytic converter and better fuels

• Emissions per carkilometer have been reduced by factor 10 or more

• One mistake: taxation policies still favor diesel cars in many countries– Diesel cars have 60 to 70% market share in B and FR– Are more polluting and pay less taxes per carkm

because diesel is cheaper and they need less liter/km– These days they receive extra subsidies because

they emit less CO2 per km

Source: Phd Jasper Knockaert with TREMOVE, 2010

Regulation of conventionalpollutants is a success

Share of diesel in new passenger car registrations (%)(2000 and 2009)

0

10

20

30

40

50

60

70

80

Belgium

Luxembo

urg

Norway

France

Spain

Portugal

Ireland

Finland

EU‐15

EU‐15 + EFTA

Austria

Den

mark

Italy

Uinited Kingdo

m

Swed

en

EFTA

Iceland

Germany

Switzerland

Nethe

rlands

Greece

2000

2009

What is wrong with current car taxes?

Car (excl. tax) + time cost

Fuel (excl. tax)

Climate damage

Air pollution damage

Congestion externalities

GASOLINE

Air pollution damage

Congestion externalities

DIESEL

Car (excl. tax) + time cost

Fuel (excl. tax)

Fuel tax

Air pollution tax

Congestion tax

GASOLINE

Car (excl. tax) + time cost

Fuel (excl. tax)

Fuel tax

Air pollution tax

Congestion tax

DIESEL

Car (excl. tax) + time cost

Fuel (excl. tax)

GASOLINE

Car (excl. tax) + time cost

Fuel (excl. tax)

DIESEL

Car (excl. tax) + time cost

Fuel (excl. tax)

Car (excl. tax) + time cost

Fuel (excl. tax)

Climate damage

Km tax revenueKm tax revenue

Euro/km

Gasoline excise tax

DIESEL

Dieselexcise tax

Dieselexcise tax

TOTAL SOCIAL COSTS

OPTIMAL TAX SYSTEMEXAMPLE OF OPTIMAL TAX

IF ONLY FUEL TAX

CURRENT DIESEL FUEL TAX

NOWOPTIMAL 2nd BEST IF

No congestion tax

Vehicle technology policies 2 (cars)

• Many countries use fuel efficiency standards to decrease fuel consumption per car km

• EU + Japan are the leaders• Cost efficiency can be questioned because current fuel gasoline and

diesel taxes are de facto already a very high carbon tax (200 €/ton of CO2 compared to value of carbon permits in EU of 10 to 20 €/ton of CO2)

• Adding a standard that bites can only increase the marginal cost of achieving the standard above 200 €/ton – Other disadvantage: rebound effect = more fuel efficient car has lower

variable cost and is used more so increasing congestion etc.• More fuel efficient cars receive often additional subsidies as one

tries to achieve the average fuel efficiency objective by favouring the more fuel efficient cars

20

25

30

35

40

45

50

2002 2004 2006 2008 2010 2012 2014 2016

MPG‐C

onverte

d to C

AFE T

est Cy

cle 

Figure 1. Fuel Economy Standards for New Passenger Vehicles by Country

European Union

Japan

United States

Australia

ChinaS. Korea Canada

Example of tax and subsidy favours (B)

units Diesel Fuel efficient diesel

Diesel Fuel efficient diesel

Difference w.r.t. gasoline version    Resource costs (excl. taxes and subsidies) euro/year 65 140 168 94    External air pollution costs euro/year 24 9 19 14    External costs due to mileage euro/year 0 0 0 0

    Social costs of raising public fundsa euro/year 139 376 336 443    Net social cost euro/year 228 526 523 551

    CO2 emissions ton/year 0.225 0.525 0.575 0.975

Cost per ton of CO2 savings euro/ton 1012 1002 910 565

VW Golf (77 kW) BMW 320 (120 kW)

Vehicle technology policies 3 (cars) new fuels and new technologies

Some references• Proost, S., Van Dender, K. (2011). What long-term road transport future? Trends and

policy options. Review of Environmental Economics and Policy, .vol 5 (1), 44–65• Proost, S., Dunkerley, F., De Borger, B., Günhneman, A., Koskenoja, P., Mackie, P.,

van der Loo, S. (2011). When are subsidies to trans european network projects justified?. Transportation Research A, Policy and Practice, 45 (3), 161-170.

• Proost, S., Dunkerley, F., van der Loo, S., Adler, N., Bröcker, J., Korzhenevych, A. (2010). Do the selected Trans European transport investments pass the cost benefit test?. CES - Discussion paper series 10.02, 1-22 pp: KULeuven CES.

• Adler, N., Proost, S. (2010). Introduction to special issue of Transportation Research Part B. Transportation Research B, Methodological, 44B (7), 791-794.

• Proost, S., Delhaye, E., Nijs, W., Van Regemorter, D. (2009). Will a radical transport pricing reform jeopardize the ambitious EU climate change objectives?. Energy policy, 37 (10), 3863-3871.

• Mayeres, I. Proost, S. (2001), Should diesel cars in Europe be discouraged?, Regional Science and Urban Economics 31 (4), p. 453-470.

• Proost, S. And VAN DENDER, K. (2001), The welfare impacts of alternative policies to address atmospheric pollution in urban road transport, Regional Science and Urban Economics 31 (4), p. 383-411.